Life Insurance

About Life Insurance

Life insurance can be described as an agreement between an insurer and an insured. As per the contract the insurer agrees to pay a stipulated sum when the insured passes away or at the end of the term period provided the insured is alive.

As stated in the contract other important areas such as critical illnesses or terminal ailments are covered in the plans – in such cases the insured are provided payment as soon as they are diagnosed with the said disease.

However, it is important to remember that the payment patterns may vary according to the insurer. In addition, these policies often cover other expenses like costs of funeral.

In life insurance terminology there is a difference between the policy owner and the insured. For example if someone buys a life insurance for his wife then the husband is the owner but the wife is the insured.

As per rules, the owners are parties to the contract and have to pay the premiums. The beneficiaries get the money from the policy if something happens to the insured. The beneficiaries are chosen by the owner but like the insured they are not parties to the contracts.

The beneficiaries can be changed by the owners if it is permitted in the contracts. If the policy laws state that such changes cannot be made then the permission of the original beneficiaries needs to be taken in case of the following changes:

• Beneficiary
• Cash value borrowing
• Policy assignments

In instances where the policy owner and insured are not the same person the companies tries to limit the policy buying options to one who have an insurable interest with regards to the insured.

Having insurable interest means that if the insured passes away or if something bad happens to him or her then the one with insurable interest will be affected the most. More often than not the business partners and family members are ones who are likely to have an insurable interest.

Life Insurance Premium Payment

The premium of life insurance plans can be paid in two major areas – either in a single sum or in regular periods as stipulated in the policy contract.

Advantages of Life Insurance

The major benefit of the holders of a life insurance policy is that they have a certain amount of mental peace and are secured in the knowledge that even if they pass away their near and dear ones will not suffer any problem and their lenders will be provided their money.

Life insurance policyholders can also avail loans if they require it for an emergency. The best part is that the insured need not think of repayment in these cases as the amount is automatically deducted when the policy matures.

Life insurance provides coverage for the entire life and also offers tax benefits. It also helps in dealing with various liabilities and maintaining a certain lifestyle. Some life insurance policies also provide medical facilities.

Disadvantages of Life Insurance

The major disadvantage of life insurance is that it may prove to be expensive especially when the insured suffers from an ailment or if they are regarded as highly risky by the insurers due to factors like old age.

These policies are not relevant if the insured does not have a family or any dependents as such. Yet another problem of life insurance is that the premiums normally go up with increasing age of the insured.

In some policies no cash benefits are awarded if the policy holder does not pass away within the term period. This means that the premiums paid thus far are actually wasted.

Nature of Life Insurance Contracts

The life insurance contracts may be described as legally binding agreements, which describe the restrictions of events that are being covered. These contracts also mention the situations that will not be covered so that the liabilities of the insurer can be limited.

Some general examples of such exclusions may be mentioned as below:

• Claims related to suicide
• Claims related to riot
• Claims related to fraud
• Claims related to civil unrest
• Claims related to war

In case of suicides the contracts specify a certain time period if within which the suicide happens the policy will be declared null and void. Under normal circumstances, this period varies between one to two years of buying the policy.

The policy could also be cancelled if it is found that the policy owner provided false facts on the form. The policies also have a face amount, which is the initial sum that is paid when the plan matures or when the insured passes away. The final death benefit can be either more or less than this amount.

Types of Life Insurance Policies

Life insurance plans may be broadly categorized into two types – investment based policies, and protection based policies. They may be further described as below:

Protection plans
The protection based plans are created in such a way that a benefit is provided when a certain event happens. The payment provided in these policies is normally a lump sum. The most common example of this is term insurance.

Investment plans
The main aim in case of the investment based life insurance plans is to make sure that the insured’s capital sees a substantial amount of growth. In these plans the premium can be paid at regular intervals or at one go.

The different types of life insurance may be mentioned as below:

• Term insurance
• Group life insurance
• Permanent life insurance
• Senior life insurance
• Whole life plans
• Preneed life plans
• Universal life plans
• Unit linked insurance plans
• Limited pay policies
• Life annuities
• Endowment plans
• Pension plans
• Accidental death plans

Life Insurance Premiums

The life insurance premiums are decided with three main objectives:

• Pay off the claims
• Make profits
• Pay off the administrative expenses

The costs of insuring an individual are decided by using the mortality tables that are created by actuaries. They, however, only provide a basis for further calculations and are used along with the family history and health of the insured. These factors also help in determining whether the applicant can be insured or not.

Life insurance – Major Purposes

The underwriters normally decide the purpose for which the insurance is being availed. The most common reason is to make sure that the family and its financial interests are protected when the insured passes away.

Other aims of availing a life insurance policy can include estate planning. In case of contracts with cash value, it could be planning for retirement. Life insurance can also be taken for covering sell and buy stipulations in business agreements or covering home loans.

Life insurance – Categorization of Applicants

In general there are four major ways in which a life insurer will categorize the applicants – preferred best, standard, preferred, and tobacco. Preferred best means that the applicants are absolutely healthy and do not have a troublesome medical history and is also not taking any medicines for any purpose whatsoever.

Being a preferred best applicant also means that the individual’s extended or immediate family members do not have a previous record of having suffered from critical ailments like diabetes and cancer.

Being a preferred candidate means that the applicant is only taking medication for an ailment and his or her family has suffered from certain diseases.

Factors like profession, lifestyle, and travel can often determine how a person is looked at by the insurers.

Life Insurance Death Proceeds

When the insured passes away, the beneficiaries need to provide proper proof of death before the claims are settled. The bare minimum in these cases is a death certificate and a properly signed and filled up claim form.

If the policy amount is a big one and the insured has passed away under suspicious circumstances then the insurer can launch an investigation into the same before coming to a decision on payment of claims.

Payment can be done at one go in the form of a lump sum or as annuity, which means regular installments at definite periods of time. This is either done for as long as the beneficiary stays alive or for a certain period of time.

Top Life Insurance Policies in India

The following table shows the leading life insurance plans available in India:

Insurer	Name of policy
Bajaj Allianz	iGain III Insurance Plan i-Secure Insurance Plan CashRich Insurance Plan
Birla Sun Life Insurance	BSLI Wealth Plan BSLI Guaranteed Wealth Plan
HDFC Standard Life	Click2Protect Online Protection Plan HDFC Life Smart Woman Plan
ICICI Prudential Life Insurance	ICICI Pru iCare
ING Life Insurance	ING Market Shield ING Star Life
Life Insurance Corporation of India	Jeevan Ankur Jeevan Akshay VI
MetLife India	Met Monthly Income Plan
Kotak Life Insurance	Kotak Ace Investment Plan Kotak Assured Income Plan
Tata AIA Life Insurance	Tata AIA Life Insurance Suraksha Kosh Tata AIA Life Insurance Maha Raksha Supreme
Aviva Life Insurance	Aviva iLife
Sahara Life Insurance	Sahara Vatsalya Jeevan Bima
Shriram Life Insurance	ShriLife Wealth Plus Money Back Shriram Ujjwal Life SP
Bharti AXA Life Insurance	Bharti AXA Life eProtect
Future Generali	Future Generali Smart Life
IDBI Federal Life Insurance	IDBI Federal Termsurance Seniors Insurance Plan IDBI Federal Wealthsurance Milestone Plan IDBI Federal Childsurance Dreambuilder Insurance Plan IDBI Federal Lifesurance Suvidha Savings Insurance Plan IDBI Federal Hospitalization and Surgical Plan IDBI Federal Incomesurance Endowment & Money Back Plan IDBI Federal Loansurance Group Life Plan IDBI Federal Homesurance Protection Plan IDBI Federal Bondsurance Advantage Insurance Plan IDBI Federal Group Microsurance Plan
Canara HSBC OBC Life Insurance	Dream Smart Plan Secure Smart Plan Grow Smart Plan Smart Sanchay Plan Future Smart Plan
AEGON Religare Life Insurance	iTerm
DLF Pramerica Life Insurance	WEALTHASSURE

Last Updated on 10/05/2012

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